The Ruby General Insurance Co. Ltd. vs The Bharat Bank, Ltd. and others

Kapur, J.—In this defendant''s appeal the sole point for determination is the interpretation of cl. 19 of the terms of the policy.

In order to resolve the controversy it is necessary to give in some detail the facts of this case. On 21st December 1947, firm Kartar Singh Amrik Singh took out a policy of fire insurance on cotton goods stock which was lying in the godown of M. Gore Cotton Ginning Factory situate at Jandiala in the district of Amritsar, and it was pledged with the Bharat Bank, Limited, Katra Abluwalian Branch, Amritsar. On 13th February 1948, this policy was renewed for a period of three months. On the night between 20th and 21st March 1948, there was a fire and the allegation is that the whole of the goods were burnt down. By letter, Ex. R/1, dated 22nd March 1948, the Bharat Bank informed the insurers that the goods had caught fire and asked the Insurance Company to sent their representative to inspect the godown. It appears that a difference arose between the parties with regard to the amount of the damage which had been caused by the fire. Sometime in March 1948, the Insurance Company informed the Bank that they had appointed Mr. Nand Lal Oberoi to assess the loss on their behalf. What happened exactly after this is not clear, but some correspondence ensued between the parties as regards the appointment of the arbitrator.

On 21st January 1949, the Insurance Company offered a sum of Rs. 22,500 in full and final settlement of the loss that had occurred. This offer was without prejudice, but the offer was rejected by the Bank in the following terms:

With reference to your letter.....we beg to advise that your offer of Rs. 22,500 in full and final settlement of our above claim is not acceptable to Messrs Kartar Singh Amrik Singh. They are, therefore, taking steps to serve you the necessary notice for referring the matter to arbitration.

The evidence of Mr. Baij Nath Chopra, Manager of the Insurance Company, shows that some kind of notice was served on the company for referring the matter to arbitration, but what happened to this notice and why an arbitrator was not appointed does not seem to be clear from the record. The fact remains that no arbitrator was appointed.

On 18th March 1949, an application under S. 20, Arbitration Act, was filed by the Bank praying that the agreement as contained in the policy be filed, arbitrator be appointed and an award obtained from him which should be made a rule of the Court To this application the Insurance Company replied on 21st April 1949, in which they pleaded that the Bharat Bank had no locus standi to make the application; that there was no agreement in writing and that the 12 months from the happening of the alleged loss having already expired and the claim being neither the subject-matter of pending action nor arbitration, the Company was no longer liable for any loss and the policy was not enforceable.

Three issues were framed by the learned Judge and they are:

(1) Has the Bharat Bank, applicant, locus standi to bring the present application? (2) Is the present application within time? (3) IS the agreement not binding so far as arbitration reference is concerned?

The learned Judge held that the bank was the pawnee of the goods lost and had a direct interest and being one of the promisees expressly mentioned in the policy could bring the application. On the 2nd issue he held that the parties could not by agreement curtail the period of limitation and, therefore, cl. 19 of the conditions of the arbitration agreement was void, and on these findings, he allowed the petition. Against this order the Insurance Company has come in appeal to this Court.

The submission on behalf of the appellant; was that cl. 19 of the conditions of insurance was not void as it neither contravened the Law of Limitation nor the Law of Contract. The clause is as follows :

In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.

In my opinion, it is not illegal to stipulate that a claim should not be made because the claim ceases unless made within a certain time and this is the law both in England as well as in India. In Atlantic Shipping and Trading Co., Limited v. Louis Dreyfus and Co., (1922) 2 A. C. 250: (91 L. J. K. B. 513), the arbitration clause was to the following effect :

A claim must be made in writing and claimants'' arbitrator appointed within three months of final discharge and where this provision is not complied with the claim shall be deemed to be waived and absolutely barred.

The matter went up in appeal to the House of Lords and there Lord Dunedin at pp. 255, 256 observed :

It goes on however, to say that if the claim is not made and the arbitration started within a certain time the claim is to be held to be abandoned. Now, if it were illegal to arrange that a claim should not be made unless made within a certain time I should understand the argument, but as it is admitted that it is perfectly legal to make such a stipulation it is done, e. g., every day in insurance policies-then why should it be bad because it is tacked on to a provision for arbitration instead of to an action at law? All it comes to is this: I stipulate that you shall settle your differences with me by arbitration and not by action at law, and I stipulate that you shall state your differences and start your arbitration within a certain time or you shall be held to have waived your claim.

Sir N. N. Sircar in his Law of Arbitration at p. 71 has approved of these observations and says: "A time limit for action is a valid condition and it has been held to be so in Indian cases." He has relied on the authority of Girdharilal Honuman Bux Vs. Eagle Star and British Dominions Insurance Co. Ltd., and Baroda Spinning and. Weaving Co., Ltd. v. Satyanarayan Marine & Fire Insurance Co., Ltd., 38 Bom. 344: (A.I.R. 1914 Bom. 225).

I do not see how such a clause is void as contravening the Law of Limitation. It is open to any two parties to agree that the promisor would only be liable if he is informed of the indemnification within the stipulated period, and there seems to be a great deal of sense in it particularly in the case of fire insurance or insurance against accident where the liability to the extent of the damage caused, when the matters are fresh, can be measured with a certain amount of accuracy. Lapse of time in such cases may result in all kinds of claims which are not capable of determination with any amount of exactitude and when memories of men may become rather hazy,

In certain cases in India a clause similar to cl. 19 of the present conditions has been the subject-matter of dispute. In A. N. Ghose v. Reliance Insurance Co., A. I. R. 1934 Rang. 15: (11 Rang. 475), in the policy of fire insurance one of the conditions was in the following terms:

If the claim be made and rejected and an action or suit be not commenced within three months after such rejection.....or within three months after the arbitrator or arbitrators or umpire shall have made their award, all benefit under this policy shall be forfeited.

It was held that a such a clause did not defeat any provision of law, that it was not opposed to public policy and that it neither contravened S. 28, Contract Act, nor Art. 86, Limitation Act.

In G. Rainey v. Burma Firs and Marine Insurance Co. Ltd., 3 Rang. 383: (A. I. R. 1926 Rang. 3), it was held that it was legal to contract that on the happening of a certain event a person shall lose all his rights and, therefore, it cannot be said that the condition which distinctly limits the right of an insured to enforce his rights within a period specified, is a void condition. It was said in the course of judgment that conditions which clearly and distinctly limit the period within which a suit may be brought are distinctly conditions that are void by reason of the special provisions of S. 28, Contract Act; but there is undoubtedly a marked distinction between a condition which so limits the time within which a suit may be brought to enforce rights, and one which provides that there shall no longer be any rights to enforce.

In Dawood Tar Mohammad v. Queens, land Insurance Co. Ltd., A. I. R. 1949 Cal. 390 : (I. L. R. (1945) 1 Cal. 638), cl. 19 was in terms absolutely similar to one now in dispute and it was held that if such a clause was not void it did not operate to defeat the provisions of Law of Limitation. In my opinion, a clause of this kind does not limit the time within which a plaintiff can bring a suit, but the restriction is on the time during which the insurer will accept his liability for the loss, and this is exactly what was held in A. N. Ghosh v. Reliance Insurance Co., A. I. R. (21) 1934 Rang. 15 : (11 Rang 476). On this ground, therefore, the judgment of the learned trial Judge is erroneous and I must hold that the learned Judge was in error in not giving effect to the objection taken by the appellant company that at the expiration of 12 months from the happening of the alleged loss and without the claim being the subject-matter of a pending action or arbitration the liability of the company ceases and the terms of the insurance policy are no longer enforceable. On this ground the appellants are entitled to succeed.

It was submitted by the respondents that the proceedings which had started under S. 20, Arbitration Act, were an action within the meaning of cl. 19 of the terms and conditions of the policy. Attention was drawn firstly to various rules and orders of the Supreme Court Rules as contained in the Annual Practice, and it was submitted that in England such a proceeding as contemplated by S. 20, Arbitration Act, would be an action. Reliance was placed on Cox v. Hoare, (1907) 95 L. T. 121, where it was held that a special case stated under the Arbitration Act, 1689, was within the definition. Its is indeed difficult for me, sitting in an appellate Court hearing appeals from Courts which are governed solely by the Civil Procedure Code, to interpret a word which is entirely foreign to that Court (Code?) As far as I am aware the word ''action'' is not used in the Indian CPC and it is not used in the parlance of lawyers in this State as indeed in any other State except perhaps by lawyers practising in what were Presidency High Courts where rules had been borrowed and procedure followed as in the Courts at Westminster. It is a fact to to noticed that companies operating in India or Indian companies have used terms in their documents which are followed with very slight variation from documents used in England and that is why words and phrases used there become most difficult of application and still more difficult of interpretation.

It was then submitted that in England the procedure corresponding to applications made under Ss. 8 and 9, Arbitration Act, are by originating summons and, therefore, an application under S. 20 would also be by means of originating summons which would be an action. Whether it is so or not, I am unable to determine on the material before me, and even if it was, I am not sure that the word ''action'' used in India would have the same meaning as it has in England.

In five clauses of the terms of the policy the word ''action'' is used. Clause 4 reads: "In any action, suit or other proceedings, the burden of proving.... " In cl. 6 again the words used are "In any action, suit or other proceeding,.." In cl. 13 the words used are: "Action or suit..," In cl. 18 the words are: "Right of action or suit..." In cl. 19 the words are: "Subject to pending action or arbitration..."

The words have been Used in such a manner that there must be some distinction between the suit and an action and other proceedings. What exactly is the meaning of the word ''action'' seems to be obscure because under the English Act of 1889 an award can be enforced by originating summons before a Master its Chambers under O. 54 Rr. 4 (b) and 4 (f) and in spite of the provisions of S. 12, Arbitration Act of 1889 it can also be enforced by an action as of right, whether the submission was by parol, by writing under hand, by deed, by the rule of Court, or by order of a Judge. So there must be some difference in the use of the word ''action" in arbitration matters and originating summons while applying to the same kind of matters. At any rate, as I have said before, on the material before me, I am unable to interpret what exactly is the meaning of the word ''action''. As it is ordinarily understood it is another name for the word ''suit''.

Under O. 2, R. 1 of the English Supreme Court Rules, every action in the High Court has to be commenced by writ of summons which shall be endorsed with a statement of the nature of the claim made.

Under the Rules of the Bombay High Court in Chap. 5 R. 83 (y), applications in all matters arising under the Indian Arbitration Act are disposed of by a Judge in Chambers and I should indeed be surprised if a suit could be disposed of by a Judge in Chambers.

I am, therefore, unable to find any assistance from either the English Annual Practice or from Rules and Forms of the Bombay High Court (on the original side).

Counsel then submitted that under sub-s. (2) of S. 20, the application has to be in writing, numbered and registered as a suit and, therefore, an application under S. 20 would be a suit for certain purposes, and he referred me to a large number of cases where applications under the corresponding provisions of sch. 2, Civil P. C., were treated as a suit. Reliance was placed on Selvarayan Samson v. Amalorpavanadam, AIR 1928 Mad. 969 : (112 I. C. 691), where it was held that for purposes of O. 9 R. 13, Civil P. C., proceedings under para. 20 of Sch. 2, Civil P. C. were a suit.

Similarly in Mahabir Prasad Bhagat Vs. Bal Kishun Das and Another, (1 Pat. 48), it was held that the provisions of O. 9 R. 13 applied to a decree under para. 21 (2) of Sch. 2, Civil P.C.

In Gauri Shankar v. Maida Koer, 31 Cal. 516, it was held under the provisions corresponding to O. 23 R. 1 that an application to file an award could be withdrawn with liberty to bring a fresh application.

In Lokumal v. Dilsher, A. I. R. 1935 sind 208 : (30 S. L. R. 12), the expression ''suit'' in S. 16, Provincial Small Cause Courts Act, 1887, was held to include an application under para. 20, sch. 11, Civil P. C., which is not a suit, but is required to be registered as a suit.

But very little assistance can be derived from these cases as the provisions of the CPC applied as far as may be to proceedings under sch. II since a special procedure was laid down in the schedule.

25 AIR 1932 374 (Lahore) a judgment of Sir Shadi Lal C. J., and Broadway J., where the question was whether notice under S. 80. Civil P. C., was necessary in the case of applications under para. 17 (2) of Sch. II, Civil P. C., it was held that such applications were not a suit for the purposes of S. 80, but the observations of Sir Shadi Lal C. J., are of some importance. At p. 574 the learned Chief- Justice said :

When the law says that the application shall be numbered and registered as a suit, it implies that it is not in fact a suit. If it were really a suit, it must, proprio vigore, have all the attributes of a suit; and it would be wholly redundant to enact that it shall be numbered and registered as a suit.

I am unable to hold, therefore, that a proceeding under S. 20, Arbitration Act is a suit for the purposes of cl. 19 and even if it was, it would indeed be difficult to include it within this clause as the exception given is not to a pending suit, but to a pending action or pending arbitration. I am, therefore, unable to bold that the proceedings under S. 20 are one within cl. 19 of the conditions of the policy.

I would, therefore, hold : (1) That a limitation placed by the terms of a policy during which a claim can be made or after which excepting in certain contingencies the liability of the insurer will cease is not a condition which is void either under the Contract Act or under the Limitation Act. (2) The use of the word ''action'' in the terms and conditions of the policy is unfortunate as the word ''action'' is not used in Indian law. (3) That the proceedings under S. 20 are not a suit even if the word ''action'' was equivalent to the word ''suit''. (4) That a pending suit is not an exception within the terms of cl. 19, and, therefore, would be of no avail to the insured.

I am, therefore, of the opinion that this appeal must succeed and I would allow it. The appellant will have his costs in this Court as well as in the Court below.